By the end of last year, much was being made of the failed attempts at multibillion-dollar mergers by FPL with Constellation, Exelon with PSEG, and Southern Co. with Progress Energy. In spite of...
Fossil Plant Decommissioning: Tracking Deferred Costs in a Competitive Market
Widespread concern over nuclear plant decommissioning has triggered similar interest in the decommissioning of fossil-fired steam generating stations. This rising interest stems in part from the emergence of a competitive market in electric generation, which, among other things, threatens impairment of assets.
Fossil decommissioning issues are not nearly as contentious as those that attend nuclear plants. Nevertheless, the magnitude of cost estimates for fossil decommissioning, when expressed as a percentage of station investment, is high enough to demand attention from accountants and regulators.
Over the 30 years during which I have been involved with setting fossil station depreciation rates, I have seen a steady progression in the need for and attention paid to plant decommissioning. Where fossil stations once carried a zero decommissioning cost (em with the contractor keeping the salvage (em fossil decommissioning today incurs significant costs. This change derives partly from strict rules for handling hazardous materials, and partly from the design of the stations involved.
Past experience is unlikely to provide a meaningful indication of decommissioning costs for most existing fossil stations. Most prior experience has largely come from removal of units with self-supporting boilers. Modern stations, however, come equipped with very large top-hung boilers that require more extensive (and costly) removal procedures. Yes, modern stations will employ less insulation containing asbestos, which will reduce decommissioning costs. But salvage value will be limited for modern stations, because large top-hung boilers will hold only scrap value and the other equipment, being quite old, is unlikely to have any reuse value.
In particular, I am familiar with two specific and unusual instances of recent decommissioning at modern stations. Both cases involved quite young turbogenerator units with high reuse values. The salvage for one greatly exceeded the demolition and site restoration costs, because part of the deal to buy the turbogenerator was that the purchaser demolish the station at his expense. For the other, the reused turbogenerator produced about 5 percent salvage and the actual demolition cost was about 40 percent, which did not include complete site restoration.
Unfortunately, this experience is not indicative of what can be expected for most modern fossil stations.
Magnitude of Costs
Although high, estimates of fossil plant decommissioning costs will be influenced by site conditions, station design, estimate assumptions, and the experience of the estimator. Cost estimates that are a matter of public record show quite a range of costs and cost components, but do not disclose whether the variations derive from one of these factors specifically or from a combination thereof. Station design is particularly important, however, because it is generally recognized that modern top-hung boilers are more expensive to remove than self-supporting boilers. Just how much more expensive depends on the assumed removal process, and opinions differ on whether certain processes can be implemented safely.
One can express decommissioning costs in at least two ways: 1) unit costs, or 2) net salvage factor (that is, salvage less cost of removal, expressed as a percentage of depreciable investment). I collect site-specific fossil station decommissioning cost estimates that are a matter of public record,